Use Life Insurance to Leave a Legacy

The Merriam-Webster Dictionary defines Legacy as a “gift by will especially of money or other personal property”. Many people leave a legacy every year as part of their last will and testament.  This legacy comes in the form of cash being left to honor other individuals, institutions, religious organizations, or charities they feel very strongly about. The gift, in some cases many years in the making, comes as a result of financial success. Just take a look at any named college building, scholarship, or hospital wing as an example. At some point, we all reaped a benefit from one of the above legacies.    

How many of us would like to leave something behind to benefit others?  How many of us would like to leave an impact after we are gone?  The answer is probably most people.  Unfortunately, many individuals don’t carry through with this because of their financial situation.  Let’s be honest, the examples above were left by men and women who were very wealthy and possessed a high-net-worth.

However, this is a relatively inexpensive strategy that allows for a middle class or working class individual to leave their mark.  You can purchase a life insurance policy and name any individual or organization as the benefactor.  For example, a 50-year-old male, non-smoker, with an income of $40,000 per year wants to set aside $45.00/month to leave to the university from which he graduated. This would help fund a scholarship for students majoring in history. For this cost, the man would fund a $100,000 term life insurance policy, plus if he adds a waiver of premium rider, the policy will stay in force if he should become disabled and can no longer pay the premiums.  Upon his death, our man’s wish of leaving something to his university is accomplished. The university receives $100,000 tax-free which they then use to set up a scholarship for history majors; to show their gratitude, the scholarship will bear his name. Not bad for a middle-income earner.

If you wish to leave a legacy, life insurance can provide the answer.  You don’t have to be rich to use this strategy and the premiums are affordable.  An advisor or life insurance agent can help you make a difference that will last for generations.

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor. He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.

(Life Insurance Benefits could be subject to the claims-paying ability of the Life Insurance Company.)

Using Whole Life Insurance as a Roth IRA

Would you like to contribute to a Roth IRA but cannot due to high-income limitations? Are you making maximum contributions to a Roth IRA and wish you could contribute more? Would you like to have a source of tax-free income in retirement? Would you like to pass something to your heirs’ income tax-free? If you answered YES to any of these questions, perhaps Whole Life Insurance would be just the thing for you.

While a Roth IRA and Whole Life Insurance share several important attributes, whole life insurance offers features that are not available with a Roth IRA. First, contributions to both are made with after-tax dollars. However, annual contributions to a Roth IRA are limited to $6000.00 ($7000.00 for Age 50 and over) plus if you make a certain amount of income, you could be ineligible to contribute.  Most Whole Life Insurance policies will usually allow for extra premium payments which are greater than Roth IRA contributions.

A second characteristic shared by a Roth IRA and Whole Life Insurance is the contributions to each grows on a tax-deferred basis.  This is a great way to build wealth free of taxes.  There is a difference between the two on how the contributions are invested. Most Roth IRA contributions are invested in mutual funds which are subject to market risk which, in turn, will cause the value of the account to fluctuate.  On the other hand, premiums paid to a whole life insurance policy are put into interest-paying investments that provide a fixed rate of return free of market volatility. This return is the policy’s cash value and compounds over time.

A third shared feature between a Roth IRA and Whole Life Insurance is that the distributions from each is tax-free.  After age 59 ½ and the Roth IRA has been in existence for five-years, distributions are tax-free. Distributions can be taken from  Whole Life Insurance at any time as a tax-free loan as long as there is cash value to cover it and the policy is in-force.*  In addition, life insurance companies will occasionally return some of their profits to their whole life policyholders as dividends.  These dividends are considered the return of premium and by IRS rules are tax-exempt.

A final hallmark of both a Roth IRA and Whole Life Insurance is each has a beneficiary feature.  When a Roth IRA is opened, the account owner must name a beneficiary (usually a spouse) if he/she passes away.  However, a Roth IRA is included in the account owner’s gross estate and could be subject to federal and state estate taxes where applicable. Whole Life Insurance pays a tax-free death benefit to the insured’s beneficiary.  

When deciding on whether to use Whole Life Insurance instead of or in conjunction with a Roth IRA, you need to consider your present and future tax situation, goals, and estate plan. An advisor, a tax professional, and estate attorney will all prove useful in this decision.

* If Tax-Free Loans are taken and the policy lapses, a taxable event may occur.

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor.  He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.  

(Life Insurance Benefits could be subject to the claims paying ability of the Life Insurance Company.)

Disclosures: 1. Life Insurance Cash Values Grow Without Being Subject to Current Taxation. Dividends are Not Guaranteed.  Certain conditions apply if the policy is classified as a Modified Endowment Contract.  Always Consult a Tax Professional regarding your personal situation to determine the suitability of the use of whole life insurance.

Life Insurance as a Business Planning Tool: Key Person Insurance

When it comes to business ownership, maintaining a comprehensive business plan is extremely important. A business plan is a blueprint for a company's operation.  It lays out policies, procedures, and principles which guide the business and the tools to be used.  Of the many planning tools at the disposal of a business, there is one that is often overlooked. It is Life Insurance. 

Life Insurance has many uses in business beyond a group plan as an employee benefit. Life Insurance can actually be used to safeguard a business in the event of the loss of an important employee. This strategy is Key Person Insurance.

One of the worst things to happen to any business is for one of its managers, high producing salesperson, lead technician, chef,... to pass away.  This person's loss could possibly result in a loss of revenue, credibility, or leadership.  A Key Person policy offsets any potential drop in profits or pays for the replacement of this individual.  The business is the owner and beneficiary of this insurance policy. The business must have the key person's permission to take the policy on his/her life. Premiums are paid by the business which is NOT tax deductible.  However, the proceeds from the policy are received by the business free from income taxes.

No matter whether the business is large or small, all have that one (or more) individual whose loss would be a potential blow to the bottom line or operations.  Safeguarding your business by insuring the life of this employee could prove to be a prudent move.  

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor.  He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.  

(Life Insurance Benefits could be subject to the claims paying ability of the Life Insurance Company.)

What to Consider About Life Insurance By Matt Dressel

The decision to purchase life insurance is very important.  It is a key part of your financial plan.  It pays your final expenses, provides funds to replace your lost income as well as to settle debts such as a mortgage, medical expenses, credit cards, or student loans. However, many individuals buy life insurance based solely on the cost of the premium without considering the features and benefits of the policy as well as how it meets their overall life situation. So what things should you consider when looking to obtain a life insurance policy?

Let’s start with the base policy.  The death benefit is the major feature of any life insurance policy. Ask yourself is the benefit payment going to be enough?  Will it keep pace with inflation?  These two questions are crucial if you have debts such as a mortgage or future plans for sending a child to college. Another thing to consider is what else is offered as part of the base policy at no charge.  For example, many insurers offer an Accelerated Death Benefit.  This rider allows the insured to access a certain percent of the death benefit in the event of a terminal illness.  If you have a family history of terminal illness this benefit could cover a large portion of the medical bills. Some insurers offer this benefit as a rider for an additional cost but why pay an added charge if you don’t have to?  Finally, if you are looking at a Whole Life or Universal Life Policy, the Cash Value will need to be considered. Will the interest rates build the cash value you need to help meet any goals or challenges, especially during your retirement or if you are in a high-income tax bracket?  Also, does the insurer have a past history of paying yearly dividends?  When looking at the base policy make sure it is aligned with your individual needs and financial goals in a cost effective manner.

The next thing to consider in obtaining a life insurance policy is the choice of riders that can be added to it.  Riders allow you to further design a policy to meet your needs and goals. Most riders come with an added charge, but some policies have free riders such as the Accelerated Death Benefit Rider described earlier. The following is a summary of the most common riders.

• The Waiver of Premium waives the premium payment if you become disabled as defined in the life insurance policy. If you work with machinery, chemicals, or any area that requires heavy exertion or heat exposure, this rider would be appropriate.

• The Accidental Death Benefit pays an additional benefit if your death is accidental. If you drive long distances regularly to work or school, work as a professional driver or delivery person, or work in construction or a construction related field, you should consider this rider.  

• The Option to Purchase Additional Insurance allows you to purchase additional coverage at specified dates in the future regardless of health or occupation. This rider is a great planning tool to protect your growing assets, your family, and your income as well as protects against inflation. If you are anticipating a salary increase, having children/more children, or assuming the care of an aging parent/relative, this rider would be valuable.

• A Term Rider allows you to buy temporary additional coverage on yourself without the expense of getting another policy.  This is a great way to help protect your assets from temporary or short-term debts associated with accessing a line of credit or a home equity line.

• The Child/Family Rider allows you to buy temporary additional coverage on a child or other family member without the expense of getting another policy. This is useful for final expense coverage or as starter coverage for a child.

• A Long-Term Care Rider allows you to pay for qualified long-term care expenses. This rider is ideal for individuals with a family history of long life spans and/or who want to avoid tapping into their other assets to pay for long-term care expenses.

Life Insurance is a major component of your financial plan.  Choosing a policy based only on the premium could be harmful in the long run. In short, you "get what you pay for".  It is important that you evaluate and design a policy to meet your financial needs and goals.  A financial advisor and/or a life insurance agent will work with you to make sure you have the right coverage.

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor.  He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.  

(Life Insurance Benefits could be subject to the claims paying ability of the Life Insurance Company.)